Industry consultant Andy Cooper recounts how a previous attempt to increase taxes on tourists had a huge impact on arrivals, and says he sees no reason why the same thing won’t happen again
One of the most important quotations I learned while studying history was a line by the philosopher, poet and novelist George Santayana, who said: “Those who cannot remember the past are condemned to repeat it”.
I have frequently seen businesses repeat their past mistakes, having forgotten why they discarded something in the first place, and governments are equally likely to do the same thing.
It therefore really worries me when I see the proposals of the Balearic government to reintroduce an Eco Tax, of €1 or €2 per night on all tourist accommodation.
A previous government tried this almost 15 years ago, and whenever I present on what steps governments can take which affect tourism, I always refer to this example.
The Balearic islands had a coalition government elected at the start of the noughties, and that government had two major concerns.
They felt that there were too many tourists overcrowding the islands, and at the same time, house prices were becoming unaffordable for locals, as a lot of expats were buying up accommodation on the islands, and particularly in Mallorca.
Their solution to address this was to introduce an Eco Tax, supposedly to give the islands a higher level of income, which would help to address these issues.
As a short-term measure to achieve these objectives, the tax could have been said to be a roaring success. The tax ran from February 2002 until May 2003; however, when the newly-elected government abolished it on the day following their election.
The most striking arrivals figures were those from the German market – and it could be said that the tax was aimed at Germans in particular.
In the period from 2001 to 2003, German arrivals in Mallorca plummeted by 25%, from more than four million per annum to a little over three million.
Over the last 50 years, the Balearic Islands economy has grown dramatically as a result of tourism.
This has, for example, moved the municipality of Calvia, which contains Magaluf, Santa Ponsa, Andraitx and Palma Nova, amongst other areas, from one of the poorest regions in Spain to one of the wealthiest.
It therefore seemed a little strange that any government would want to go out of its way to inflict such economic damage on its own citizens.
It is fair to say that the citizens of the Balearic Islands agreed that they didn’t want that level of pain, and at the first opportunity – the elections in May 2003 – they voted very clearly for change, and the abolition of the Eco Tax.
Despite the abolition of the tax, it then took several years for tourist arrivals to recover fully from the peaks which had been seen in 2000 and 2001.
It therefore comes as some surprise to me to read that the current Balearic Islands government is proposing the reintroduction of the Eco Tax, at levels broadly similar to those which were imposed in 2002.
I was recently in Mallorca, and was attempting to test my Spanish by reading the local newspapers.
The vice president and minister of tourism, Biel Barcelo, was making the case for the introduction of the tax on the grounds that it would give the islands money for investment in appropriate projects which would benefit tourism overall – many of the same arguments which were used at the start of the last decade when the first Eco Tax was introduced.
He argued that “the tax is necessary to improve the competitiveness of the Balearics and because it is a social demand by the citizenship, which had ‘made possible a political change’ in the Balearics at the elections in May”.
As with the previous tax, the government is arguing that this is not intended to punish tourists, but to encourage them. It seems an unusual means of encouraging tourists, by expecting them to pay more.
These were pretty much the identical arguments to those made 15 years ago, and for me, it looks very likely that history will end up repeating itself.
While the economies of the major source markets to the Balearics like the UK and Germany, are doing reasonably well at the moment, and tourists may be happy to pay a few more euros for their stay on the islands, it doesn’t take much to put tourists off a destination.
If tourists start to perceive a destination as unwelcoming, they will soon vote with their feet, and decide to travel elsewhere.
Having suffered this experience once, you do question why any government – particularly one which derives 70% of its GDP from tourism – would want to do anything which would put those arrivals at risk.
Behind the headlines, and the story, you do wonder whether the Eco Tax may actually be proposed more as a result of a political dispute between the Balearics government and the Spanish national government rather than a genuine desire to increase tax on tourists.
There is a slightly odd tax regime in Spain which means that while there are 17 autonomous regions with responsibilities for self governance, all taxes are levied and collected centrally, and then redistributed to those regions.
This can mean that the wealthier regions can feel that they are not receiving their fair share of tax revenue.
After the abolition of the 2002 Eco Tax, the Spanish central government increased its grant to the Balearics, and it may well be that this is the real end game for the current government.
So you could argue that it is trying to learn from the past although, if so, it appears to be forgetting the consequences of the tax – the fall in tourism arrivals.
Whatever the real reason for the proposal to implement a new Eco Tax, it is obvious that the people ultimately paying that tax will be the tourists who travel to the Balearic Islands.
History has shown that previous attempts to impose a tax led to them voting with their feet, and choosing alternative holiday destinations. Why should this time be any different?
Let’s hope that the tourism industry, whether in the Balearics, or the main source markets, particularly the UK and Germany, can persuade the government to learn from past mistakes.